Business Adviser - Grant Thornton New Zealand
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Business Adviser
Issue 83 Commentary, opinion and intelligence for the
New Zealand business community
NZ’s housing crisis
Read our two-part series by
procurement expert,
Michael Worth (p2)
Women in Business
Report 2021
Discover some big break-
throughs women have
made in the last
12 months (p9)
New financial year, new approaches to Pause for a pit stop to
PLUS asset impairment testing (p11) retune your business (p14)
Housing crisis series: Part 1
This isn’t a housing
crisis, it’s a
mindset crisis
2
www.grantthornton.co.nz
New Zealand needs more houses.
Yet despite the simplicity of that goal, it’s been impossible to keep up
with demand. This problem has persisted through both National and
Labour Governments – several of each. As much as we might tinker
around with the demand side of the equation, putting LVR restrictions
up and down and tweaking interest rates, the gravity of the problem
clearly lies with the supply side and our mindsets.
Other countries like Germany and Switzerland manage to supply
sufficient numbers of warm, dry homes for their people, at the Contents
same prices as 1970 (inflation adjusted) so why can’t we? It’s partly
because this isn’t just a housing crisis – it’s a mindset crisis. New 02 Housing crisis series:
Zealanders keep clinging tenaciously to outdated ideas that are
This isn’t a housing crisis, it’s
wildly unhelpful and have been for five decades.
a mindset crisis
To alleviate the pressure on our housing and rental markets,
citizens, and local and central Government will need to make some
big changes. We need a bold vision, aligned incentives, with different 06 Housing crisis series:
industries working together, to build more houses. That can’t happen The rental crisis affects
if we’re held back by antiquated, short-term thinking. Our mindsets us all – and it’s crippling
are hampering us, creating unnecessary problems in what should be New Zealand’s progress
the best country in the world to live.
In her first post-Cabinet press conference this year, the Prime 09 Women in senior leadership
Minister wanted to know if there were any silver bullets to fix this positions pass critical
crisis. Here’s a few big ideas. 30% mark despite global
pandemic
The NIMBY and stick-build mindsets
11 New financial year, new
A hefty chunk of the New Zealand population owns houses and approaches to asset
likes the way the values keep going up. Not everyone who owns a impairment testing
house feels this way, but many do. These homeowners represent an
enormous voting bloc; plus, they have the knowledge and resources 14 Pause for a pit stop to retune
to put up a real fight when they feel aggrieved. This creates your business
considerable political inertia.
This inertia puts the handbrake on efforts to build faster, cheaper
homes across the country. Strong objections emerge to any new
developments in “our” area, with a preference for the construction
of one-off homes that ‘fit in’ with the ‘character’ of “our” suburb,
and a general want to protect their current wealth and lifestyle. New
subdivision of prefab homes? Urrrgggh. Not in my backyard.
This mindset is a considerable problem because the way we build
now is too large, too slow and too bespoke. We need faster and more
cost-effective building techniques. That means using the full range
of prefabrication types to their fullest capacity. This would allow us
to build houses in factories, in any weather, then assemble them on
site. There are solutions for metro, and solutions for the regions. Older
Kiwis know all about prefabs: their mindset is coloured by visions of
old post-war prefabs or boxy school classrooms. Modern prefabs are
brilliant and would outperform our existing homes in terms of warmth,
3
Housing crisis series: Part 1
comfort and ease of construction. They can also look behind an enormous pile of debt that will somehow cripple
fantastic, too. future generations.
Considered logically, it is insane that a single draughty We think about New Zealand’s finances in the same
villa on a full section is somehow noble and desirable, way we think about our personal finances: debt is bad, it
while a warm, dry, affordable modern home, with a low must be eliminated as quickly as possible, and it’s better
maintenance garden, is an abomination because it looks to cut back on spending than to keep borrowing. All that
too much like the house next door. is perfectly true when it comes to household spending
There’s no reason we can’t do this in New Zealand. – fewer takeaways, cancel Netflix. But cutting back on
We have the basic materials, with a flourishing timber spending for the Government means putting less money
industry and world-leading lightweight steel technology. into essential public services and less investment in the
We could have the people power too, with a little training future of New Zealand. It means those in charge have to
and investment, especially as we now have considerable think about how it looks to the public if they want to fund
capacity in our tertiary institutions with the flow of foreign more money to fix a problem like the housing crisis. The
students down to a trickle. I believe we could produce Government’s “deficit” is the private sector’s surplus.
tens of thousands of houses a year – and we know the Should we fund the construction of hundreds of
demand is there for these to be snapped up by individual thousands of houses? What is the benefit? First, the
buyers, community housing providers, cooperatives, iwi investment we make in the housing market will increase the
organisations, Kainga Ora, and private developers. health and wellbeing of huge numbers of New Zealanders.
That’s a massive payoff, well worth achieving. Second,
The ‘Government debt is crippling when we invest in having a better standard of affordable
living, Kiwis don’t need to spend their time worrying
our future’ mindset about where they’re going to live. Instead, they can think
Our public mindset when it comes to national debt is about getting promoted at work, starting a business, and
another factor making it very difficult for the Government having a family. All these factors improve New Zealand’s
to do what is needed. Every time the Government productivity, which is the main driver of an increase in the
“borrows”, there are indignant assertions that we are wealth of a society.
mortgaging our future, and that the Government is leaving
4
www.grantthornton.co.nz
The ‘rates must not rise’ and the There’s also no reason that the consent process should
be so slow – why not retrain tourism workers to process
infrastructure is broken mindset consents? They can work remotely from anywhere in
Rates are too high! It’s honestly hard to find anyone who New Zealand. We can also train and employ more Kiwis
will disagree with this statement. Councillors campaign by to speed up the consent process. We know our tertiary
promising not to raise rates. Homeowners are unanimous institutes have capacity at the moment and I know they
in believing that rates are extortionate. Yet the same would like some more enrolments.
people criticise the council when there’s sewage in the Collect more rates, deal with local problems locally,
streets, E coli on the beaches, and the water not only issue more consents faster, and leave the central
doesn’t taste that great but could be harmful. Government with more money and time to spend building
Rates are not too high. The typical Auckland houses at a national level.
homeowner, for instance, might have paid $3,000 in
rates during 2020 on a home that increased in value by
The short-term mindset
$150,000 during the same period. There are people with
homes that cost them $12,500 back in the Dark Ages Most of us are focused on our immediate goals: deadlines,
and are now worth $10 million, and those people are bills, to-do lists. Thinking about national productivity, or
particularly unhappy with the idea of higher rates. future living standards, or infrastructure? Not only boring,
They’re also unhappy with the idea of a capital gains but not your job. Your job is to focus on you and your
tax, or a wealth tax, or an estate tax. Yet this increase family, and maybe your business. That attitude is perfectly
in value derives from the commons – the proximity to natural, but it extends even into construction industry
services, amenities and neighbours. Those who don’t business owners and the other types of industries that
believe in carrying their share are a big part of the wealth support it. Without working together, we’re not going to get
distribution problem in New Zealand. They like the end of anywhere.
the see-saw they’re sitting on, believing firmly that their Last year’s pandemic demonstrated that we can pull
success is due to good choices and hard work, and they together to protect and support each other, which is
don’t want to tilt it even a tiny bit in the other direction. extremely encouraging. Our lack of houses is a national
Rates are an excellent way to specifically target problem that’s stifling our productivity and leaving
housing wealth and start to redistribute it. They are also a younger generations feeling helpless. Solving the housing
great way to fix the local/central government disconnect crisis depends on us working together, on some wealth
that the Germans and Swiss have solved. The more houses redistribution, and on a widespread shift in our mindset.
you own, the more you pay. The more your properties are We need businesses large and small, central and local
worth, the more you pay. If house values drop when we governments all working together. And they need us
build thousands of new houses, your rates drop. If you to support them in funding more, building faster and
don’t own a house, you don’t pay rates. We could adjust cheaper, and making New Zealand a better place to live
the rates calculations to put more weight on the land for everybody, not just those who’ve already made it onto
portion, rather than the ‘improvements’ (the house) of the housing ladder.
councils’ rateable valuation (your CV or RV). That could
provide for a more accurate way to capture the highest
rates from the properties in the most expensive areas. Put
simply, rates should be higher and we need to change our
thinking on this.
Higher rates can fund major infrastructure projects
in your region, taking that burden off the Government.
There’s no reason that councils should be grappling
with overflowing wastewater systems and contaminated
drinking water. All the infrastructure needed for local
Michael Worth
developments is also the responsibility of councils, and Partner and Head of Procurement Services
they need more money to carry out that work; tying rates Grant Thornton New Zealand
T +64 9 922 1351
to land values should help with that. E michael.worth@nz.gt.com
5
Housing crisis series: Part 2
The rental crisis affects
us all – and it’s crippling
New Zealand’s progress
If you think the rental crisis doesn’t affect you, you’re wrong. Maybe you think you’re not
affected because you own your own house, and you’re not a landlord. Wrong. New Zealand’s
rental crisis isn’t only causing homelessness and poverty, it’s dragging down wages, stifling
innovation and suppressing productivity for the whole country.
You can’t get ahead when you’re at the life should be in a rich, egalitarian nation like New Zealand.
People in this situation cannot achieve their potential at
bottom of the rental market work and can’t be creative, and it’s much harder for them
People in poverty need two things in order to flourish and to be the kind of parents they would like to be. This has a
raise their children: a home and a living wage. Housing knock-on effect and their children are disadvantaged, too.
unaffordability is working against them. Nearly 10% of New Zealand needs to raise our productivity and our
renters are ‘in-work poor’, according to a 2020 report by wages. The people in these households have a lot to offer –
the Human Rights Commission, and among poor working but their energy, focus and money are being consumed by
households, over 50% of earnings are being spent on their precarious housing situation.
rent. These households struggle to pay the rent and move
regularly; this transience has “flow on effects on work,
education and social connections.” They’re more likely First you have to build more houses
to live in sub-standard accommodation too, which has a The first and most obvious way to fix the rental crisis is to
negative impact on health. build more houses. We have some major mindset problems
These renters are working full-time, trying to get ahead, that hold back large-scale construction; changing our
and never making any progress. Unwell children, low- thinking will go a long way to accelerating home building.
quality accommodation, constant stress. This is not what Having more houses to rent and buy is the single most
6
Housing crisis series: Part 2 www.grantthornton.co.nz
10%
keep this vicious cycle turning. They need to be disrupted
by separating the incentives to invest in providing shelter
from investing in financial speculation on land value.
Currently, the current tax system is unfair, favouring our
wealthiest individuals and disadvantaging those who
Nearly 10% of renters can’t get onto the property ladder. What if our system
are ‘in-work poor’ addressed these two values separately? The rising land
value could be addressed by introducing higher rates to
important way to ease the pressure on our rental market. feed infrastructure development; this would benefit the
With a perceived physical shortage of houses, it’s whole community, not just some of it.
impossible to meet everyone’s needs.
Beyond the supply issue, there are several other ways Rent rises should be justified
we can address the rental crisis, ultimately benefitting
Not only do incentives drive everyday Kiwis to buy rentals,
everyone in New Zealand.
they push us towards buying cheap rentals and spending
as little as possible on them. Renters at the bottom end of
Change the incentives the market pay a much higher proportion of a property’s
value in rent than they do at the top end. For example, a
What holds New Zealand back as a nation? Our low wages
basic three-bedroom house in Kawerau will cost around
and low productivity are two major factors, and these
$350,000 and rent for about $300 a week. A basic three-
filter down into poverty and lower standards of living. One
bedroom home in Ponsonby, Auckland, will cost you
clear cause is a lack of investment in industry. We run
around $2 million and rent for roughly $900 a week. Yes,
small businesses, inefficiently, and we have a tendency
it’s triple the rent compared to Kawerau, but the house
to throw low-cost labour at problems instead of investing
is nearly six times as expensive and you’re surrounded
in innovative systems that will lead to more sustainable
by many more job opportunities, public transport and
growth. Our stock exchange is laughably anaemic; any
amenities. As a tenant, you’re getting much better value
business that wants to raise serious capital lists on the
for money in Ponsonby. As a property investor, Kawerau is
Australian stock exchange instead of our own.
a far better choice.
And why do we have such weak investment in business?
Rents are currently set by owners and property
Partly because the rental market is sucking billions of
managers who work out a maximum amount that the
dollars out of our economy each year. If we spent even a
market will bear. But that is not an appropriate method
quarter of what we currently invest in rentals into business,
for pricing a basic human right. We don’t price power that
that money could go towards funding research and
way, because we understand that it’s not a choice, it’s a
development, innovation and higher wages. That would lift
necessity. The Government regulates the power industry
the standard of living for every New Zealander. It would
so everyone can have access to it, even when they
lift your salary (or wages or profits). It would mean fewer
homeless people on the streets, better outcomes for the
average child and a more prosperous and sustainable
nation. Instead, our addiction to rental properties has not
only hamstrung New Zealand’s growth, it’s also funnelling
billions of dollars in profit offshore to the shareholders of
foreign-owned banks.
We don’t want to stop people investing in rentals if
they choose to do so, but we can certainly change the
incentives. At an individual level, buying a rental property If we spent even a quarter of what we
currently makes perfect sense. People want to grow their currently invest in rentals into business,
wealth and have a more secure financial future. But your that money could go towards funding
financial abilities might be someone else’s debt peonage.
research and development, innovation
Kiwis are responding rationally to the current economic
incentives: rising values, increasing rents and a friendly and higher wages.
tax system. Those incentives feed into each other and
7
Housing crisis series: Part 2
can’t afford to pay their bills. When the price of power The rental crisis is undermining New
increases, the supplier must justify the rise to the regulator,
and have systems in place to help those who can’t pay.
Zealand’s success
This should be the same for owners of rental properties. Our rental crisis is an embarrassment. It’s driving down
In order to raise the rent, they should justify how the actual our economy, restricting innovation and lowering our
dwelling has increased in quality - separate from the value standard of living. It’s contributing to poverty, illness
of the land. What has the landlord done to improve the and homelessness. It’s unfair and inequitable in a nation
property? Why should a deteriorating asset cost more to that prides itself on fairness and egalitarianism. It is
live in this year than it did last year? cannibalising the future of the next generation. They will
As for helping those who can’t afford market rent, the inherit an underproductive economy which will not provide
Accommodation Supplement is one of the current fall- the income to rent or buy shelter. It will also affect those
backs, but its poor design means it actually drives rents who think they are sitting pretty. As the demographic
up, according to research by the Child Action Poverty changes and those in work are out-numbered by the
Group. We need to do better. old, the productivity of the economy won’t be enough to
support them either.
It will take significant effort to build more houses and
Every rental needs to be warm, dry and
raise the standard of rentals. Changing our rating and
healthy tax system could be done much faster, literally with the
We understand that food is an essential human stroke of a pen. By failing to commit, we’re like that small
requirement, so we have vigorous food safety rules in business which doesn’t want to invest in a new online
place that start all the way back at the primary producer system, instead throwing cheap labour at the problem and
right through to the point of sale. It’s comprehensive, becoming less efficient and productive every year. This
highly legislated and closely monitored. There are large is smart investment that would generate far more than
teams of people who work hard to ensure our food is safe. it costs in the long run. Fewer families in poverty, lower
One motivator for this system is protection – for both medical costs, a more productive economy and a higher
consumers and New Zealand’s reputation. However, standard of living for every New Zealander.
consumer protection for renters has been sub-standard for
a long time, and we don’t seem to be too concerned about
having a reputation for unaffordable, cold, damp housing
that makes our children sick. This is insane in a beautiful,
wealthy nation that prides itself on being kind and friendly.
We need every home to be warm and dry. Preventable
third world diseases, like rheumatic fever, in Kiwi kids is just
horrifying.
A safe place to live is an absolute necessity. The only
way to guarantee our homes are warm, dry and healthy
is to regulate rentals. If we don’t, owners will not spend
what’s required to maintain their rentals.
The Healthy Homes Standards are a huge step in the Michael Worth
right direction, and there should be more where that came Partner and Head of Procurement Services
Grant Thornton New Zealand
from. We can continue to raise the standards for rental T +64 9 922 1351
accommodation until it becomes acceptable. E michael.worth@nz.gt.com
8
www.grantthornton.co.nz
Women in senior
leadership positions pass
critical 30% mark despite
global pandemic
The number of women holding senior leadership positions in mid-market businesses
globally has hit 31% despite the COVID-19 pandemic affecting economies around the
world, according to Grant Thornton’s annual Women in Business report.
Research1 shows that 30% is the minimum representation compared to last year, with the proportion of female CEOs
needed to change decision making processes, so this up 6% to 26%, female CFOs also up 6% to 36%, and
is an important milestone particularly given the global female COOs up 4% to 22%.
figure stubbornly remained at 29% for the last two years, However, questions remain over the impact of the
and ranged anywhere between 19% and 25% since our pandemic on women, particularly working mothers. UN
research began in 2004. data2 shows that, before COVID-19, women did three
Further, in 2021, a significant landmark has been times as much unpaid housework as men, and mounting
reached, with nine in 10 businesses worldwide having at evidence indicates that the pandemic is only increasing
least one woman in their senior management teams. By
CEOs up 6% to
26%
comparison, there has been a three-percentage-point
improvement in this figure since 2020, and in 2017 that
figure stood at two-thirds, with only 66% of businesses
having at least one female leader. This is certainly a
continuation of the positive trend seen over the past
five years, and could have a number of causes. Work CFOs up 6% to
36%
by businesses on their diversity and inclusion policies
is paying off, but it is also possible that the coronavirus
pandemic has emphasised the importance of diverse
leadership in times of crisis.
COOs up 4% to
22%
Another encouraging finding is the types of leadership
roles women are occupying. Global figures reveal higher
numbers of women across operational C-suite roles
1 Dahlerup, D. (2006). The Story of the Theory of Critical Mass. Politics & Gender,2(4), 511-522. doi:10.1017/S1743923X0624114X
2 UN Women, Nov 2020
9
Diversity and inclusion
this disparity, as well as adding the extra responsibilities of emphasis to increase once the pandemic is over.
childcare and home schooling while schools are closed. Some of these areas include instilling new working
But there has been a rapid paradigm shift over the practices to better engage all employees, adapting
past 12 months that will benefit women going forward. existing learning and development programmes to the
In this year’s report, 59% of respondents say that new current environment and promoting more flexibility for
working practices as a result of COVID-19 have increased employees.
the leadership roles that women have been able to play Fantastic progress has been made since our research
within their organisations, and over two-thirds (69%) of started 17 years ago, and while passing the 30% mark
respondents agree that these new initiatives will benefit for women in senior roles globally is a mission-critical
women’s career trajectories long-term. milestone for businesses, it’s not the end goal and these
Globally, a massive 92% of businesses say they are gains can easily be lost. If organisations want to leverage
taking action to ensure the engagement and inclusion the benefits of a better gender balance, they must
of their employees against the negative backdrop of the continue to take action to enable women to realise their
pandemic; a big part of this has been a sharp shift in ambitions.
attitudes towards how, where and when employees do Now more than ever, businesses need to stay focused
their jobs. on what is enabling women to progress to leadership
Employers have become more flexible about working positions, so that they can move forward rather than back
from home arrangements and many women have perhaps as a result of the global pandemic.
flourished in this environment given they have had to Visit our website to download your copy of Women in
be more agile than most throughout their careers due Business 2021: A window of opportunity.
to parental leave and juggling subsequent childcare
commitments.
Leadership styles have also come under scrutiny due
to the demands of the pandemic. Engagement with staff,
a greater understanding of people’s personal needs and
circumstances, and support for mental and emotional
health have been more vital than ever. As these ‘softer’
management styles, which are traditionally perceived
as more ‘female’ than ‘male’, have proved their worth, a Stacey Davies
greater appreciation of, and a greater need for, diverse Partner, Business Advisory Services
Grant Thornton New Zealand
leadership has emerged. T +64 9 922 1291
Another huge positive emerging from the research is E stacey.davies@nz.gt.com
that 90% of executives within the organisations that are
taking action to improve their work culture will
continue or even increase their emphasis on
these actions after the pandemic. On
average, across the action areas,
46% expect the emphasis
to remain the same and
44% expect the
10Financial reporting update www.grantthornton.co.nz
New financial year,
new approaches to
asset impairment
testing
The economic impacts of COVID-19 will continue to
persist well into 2021. Our borders remain substantively
closed and the national roll-out of a COVID-19 vaccine
is yet to reach critical mass in New Zealand.
Teams which perform inhouse impairment testing need What are the most relevant indicators to the COVID-19
to consider how the ripple effects of the pandemic will pandemic?
influence their financial statements over the next 12 Detailed examples of impairment indicators are included in
months. NZ IAS 36.The most relevant indicators are listed below.
What are the key considerations for asset impairment External indicators
testing? • Observable indicators of decrease in value
Assets measured at amortised cost must be tested for • Significant changes with an adverse effect on the
impairment when indicators exist or, in the case of goodwill entity, it’s economic environment or market have
and indefinite life intangible assets, at least annually. An occurred during the pandemic
impairment charge is booked to profit or loss when the • The carrying amount of the entity’s net assets is more
carrying value of an asset exceeds its recoverable amount. than its market capitalisation
Recoverable amount is determined based on the higher
of an assets value in use (VIU) or fair value less costs of Internal indicators
disposal (FVLCD). • Assets becoming idle
• Evidence that economic performance is worse than
Is the COVID-19 pandemic an impairment indicator at expected
the reporting date? • Plans to dispose of an asset
Since the declaration of a global pandemic in early • Plans to restructure
2020, businesses have needed to consider COVID-19 as
a potential impairment indicator for financial reporting Given the prevalence of certain indicators, we encourage
purposes. management to consider and carefully document these
11Financial reporting update
factors along with the consequences they might have on These changes will also be affected by the COVID-19
financial statements. pandemic and can be reflected by adjusting either:
1 the discount rate
Which assets are likely to be impacted?
2 the cash flows (including the long-term growth
Long-lived assets including: assumptions).
• right-of-use assets arising from lease contracts
• property, plant, and equipment Ordinarily, the application of a risk-adjusted discount
• intangible assets. rate approach is common. However, given the levels of
uncertainty in the current environment, the risk-adjusted
NZ IAS 36 requires these assets be tested where indicators expected cash flow approach is often preferable as it
of impairment are identified. This analysis is performed involves more explicit consideration of the wider range
for individual assets if they generate cash inflows of possible future scenarios and outcomes. Whichever
independently from other assets. For other assets and approach is applied, management must ensure the
goodwill, testing is generally achieved by reference to outcome reflects the risks, uncertainties and other
the cash generating unit (CGU) that the relevant asset factors that would influence market participants’ pricing
belongs to. In some cases, it is possible to reliably estimate decisions. It is equally important to ensure that cash flows
fair value less costs of asset disposal (FVLCD) at an and discount rate concepts are aligned to avoid double-
individual asset level, but value in use (VIU) only at CGU counting the risk factors caused by the pandemic.
level. If the FVLCD estimate shows there is no impairment, it
is not necessary to test the CGU. How will it impact the cash flow forecasts?
Remember, goodwill and indefinite life intangible Many businesses are experiencing major interruptions
assets must be tested for impairment at least annually, to their operations, with rapid declines in net cash flows
irrespective of whether indicators exist or not. and earnings, and there is ongoing uncertainty over the
Entities may have assets that are subject to impairment duration of this disruption and its longer-term impact.
testing that do not qualify as long-lived assets and are The VIU cash flow forecasts must nonetheless reflect
not financial assets. These assets should be assessed for assumptions about these impacts based on facts and
impairment as they could be impacted by the COVID-19 circumstances at financial year-end. These assumptions
pandemic, particularly if these amounts reflect historical should be explicit, clear and evidenced. In the current
transactions with third parties where the creditworthiness environment it is unlikely to be reasonable for most entities
of these third parties is now called into question. For to base their estimates on their performances during past
example, a business might have prepaid for goods or periods.
services, but the counterparty may no longer be able to As the situation develops, more information about the
provide these or to refund the payment. severity of the financial impact may become available
after financial year-end but before the date of the
How is COVID-19 likely to impact the impairment test? approval for the financial statements. While organisations
The recoverable amount is the higher of VIU and FVLCD are required to determine amounts based on their
and COVID-19 will often affect both. Many entities start by knowledge of events at the reporting date as a starting
estimating the VIU; if it exceeds the carrying value, there is point, information obtained after the reporting date can
no need to determine the FVLCD (and vice versa). However, be considered if such conditions existed at the reporting
if VIU indicates an impairment, then FVLCD should also period end. Significant professional judgement of all the
be estimated, unless facts and circumstances indicate relevant facts and circumstances are required to make this
that FVLCD would not be materially higher than VIU, or it
cannot be estimated reliably. The main building blocks of
the VIU estimate are: Entities may face real
• cash flow projections challenges in reflecting
• an appropriate discount rate and adjustments to the COVID-19 pandemic
incorporate variability
• uncertainty and other factors that would reflect in
impact in a single set of
pricing the asset or CGU. forecast cash flows due to
high levels of uncertainty.
12www.grantthornton.co.nz
assessment. accurately over such a period. Conversely, long-term
Entities may face real challenges in reflecting the COVID- growth rate assumptions applied previously may no longer
19 pandemic impact in a single set of forecast cash flows be suitable, particularly if the economic impact of COVID-
due to high levels of uncertainty. Companies should 19 is viewed as being more than short-lived.
therefore consider developing multiple scenarios and Cash flow projections must also relate to the asset in
applying probabilities for each to arrive at the expected its current condition, and entities may restructure their
cash flows. It’s important to note that not all industries are operations as part of their response to the pandemic.
affected in the same way, particularly when calculating Management may need to demonstrate that forecast
risk-adjusted expected cashflow. Reporting entities should improvements in the financial performance relate to
consider longer term scenarios based on market research the assets’ or CGUs’ current condition and not to an
and insights available to management to support their enhancement or uncommitted future restructuring.
case; this could demonstrate a reduction of cash flows in
Impacts on expected credit loss (ECL) calculations
the current year but a recovery at some point in the future
(or the opposite if current performance is above trend as Although determined based on the principles contained in
evident in some industries). Management teams’ external NZ IFRS 9 Financial Instruments, the COVID-19 pandemic is
advisors should have access to research, data and insights also likely to impact the calculation of ECL irrespective of
to quantify these scenarios. whether a business is using the simplified approach or the
full model outlined in the standard.
What about fair value less costs of disposal (FVLCD)?
When estimating FVLCD, observable and arm’s length
transactions should be referred to as much as possible. How can Grant Thornton help?
Prices for fire-sales of assets or asset groups may not Those who prepare financial statements will need
reflect an orderly transaction. In the current environment, to be agile and responsive as the situation unfolds,
it may be more difficult to determine the current fair value however your resources may be stretched at this
based on market evidence due to a lack of recent arms- time. Having quick and easy access to experts,
length transactions between market participants as they insights, and accurate information is critical. Our
are defined in NZ IFRS 13 Fair Value Measurement. team of experts can support you as you navigate
If management uses a valuation technique to estimate accounting for the impacts of the pandemic on
FVLCD, the inputs and assumptions should only represent your organisation. Now more than ever, the need
information that would be available to market participants for businesses, auditors, and accounting advisors
at the reporting date. Information not available at the to work closely together is essential.
reporting date (based on normal access and due diligence We provide time critical independent support
for a transaction involving the asset(s) in question) cannot and advice to organisations who must review or
affect fair value. When unobservable inputs are used for quantify any impairment risks relating to goodwill
fair value estimates, management needs to assess how the and other intangible assets caused by COVID-19.
available information about the COVID-19 pandemic at the
reporting date would influence market participants’ pricing
decisions.
What about useful life?
Detailed and explicit VIU cash flow forecasts are generally
required to be for no more than five years. Beyond
the detailed forecasting period, NZ IAS 36 requires an
extrapolation using a steady or declining long-term
growth rate. The impact of the COVID-19 pandemic may
mean that reporting entities will now be forced to use the
asset in its current condition for a period extending well David Pacey
beyond five years. However, NZ IAS 36 permits using a National Technical Partner, Audit
Grant Thornton New Zealand
detailed forecast period of more than five years only if T +64 9 308 2570
management cannot demonstrate an ability to forecast E david.pacey@nz.gt.com
13COVID-19
Pause for a pit stop
to retune your business
In times of economic challenge, don’t • natural language processing and machine learning
that can identify sentiment, key themes and trends in
just power through the crisis; pause recorded calls with your customers
for a pit stop to retune your business • social media monitoring that can help you measure
customer sentiment in the online environment
for the twists and turns on the road • transactions and personal data analysis to alert you
ahead. if customers are in a high-risk category following
income drops or a sudden increase in expenditure, or
As COVID-19 continues to challenge the business are otherwise vulnerable.
landscape, many organisations are now fully focussed on
building a level of resilience into their organisations that Communicate with your customers
goes beyond short-term survival and will achieve a velocity While data analytics can give you actionable insights,
that returns the business to a growth trajectory. So where customer communication remains more valuable than ever
do you begin? Businesses actively responding need to look from both a basic survival and future trends perspective.
at the following external drivers. Really engaging with clients is vital; it can flush out
any challenges they are facing and present you with an
Get to know your customers again opportunity to find solutions.
Understanding your customers’ new world has never been The decline of physical meetings presents challenges
more critical. Businesses will become irrelevant to their to relationships, but alternative interactions such as
customer base if they fail to understand the changing video calling have proven benefits of their own, and with
behaviours and priorities brought about by the pandemic. people spending less time travelling there is more time
to make those calls. Additionally, when you’re talking to
Audit your customer analytics clients in their homes, it’s almost a better, more personal
The right data analytics can give you a real-time overview relationship that you’re building.
of what is going on among your customers when activity This rapid uptake of new communication challenges
picks up. There are plenty of tools to consider including: has also removed geographical constraints, so this is
14www.grantthornton.co.nz
an ideal time to access new customers and develop key prepared and poised for any possible transaction, will
relationships beyond your borders. allow you to move rapidly when the time is right. You will
need a clear sense of how that acquisition supports your
Prepare for a new competitive landscape strategy, and how those targets align or complement your
Knowing where, when and how to overtake your operating capabilities.
competitors requires planning and a thorough
understanding of their strengths and weaknesses. Today’s Prepare to pivot your business quickly
environment is a hotbed of innovation, quick pivots, One encouraging aspect of the pandemic has been
divestments and acquisitions as businesses devise new businesses’ ability to pivot very quickly to where the
models to recover growth. demand is. This will only continue as global and regional
How likely is it that your competitors will undercut you? economies recover.
Are businesses outside of your traditional industry going to Businesses will need to weigh up the short-term and
change what they’re doing? Suddenly you may find that long-term market scenarios and have plans in place
you’ve got competitors that you’ve never had before. which they can execute with speed. Part of that includes
Maintaining your existing competitive edge requires examining your competitors’ customer base as well as
you to exemplify your business’s strengths and your own, and assessing if you are addressing the right
differences, and to clearly articulate your superiority over demand and the right customers that will put you ahead or
other brands – whether it be price, quality or customer protect you from the competition.
service.
Put your people first
Plan for strategic opportunities New ways of working have put increased pressure on
Some direct competitors or suppliers may be under stress managers and their teams. Lockdowns and remote working
and struggling. Distressed assets and low valuations may have blurred the lines between business and professional
provide suitable targets for acquisitions now or at a later lives, and brought to the fore the physical and mental
date. wellbeing of workforces.
Being mindful of those potential targets, and being
15COVID-19
Revisit your wellbeing policies
A happy and healthy workforce equals
productive and profitable employees – as
well as happy customers. We’ve helped
organisations to look at how robust or present
any wellbeing offering or strategy is in their If you require further information
organisations. about any of these topics or
would like details on other
Businesses need to recognise the impact of Businesses need to recognise accounting or advisory matters,
wellbeing on the workforce and ultimately the contact your local Grant
the impact of wellbeing on Thornton office:
bottom line; the next step is to work through a
process that ensures the business systematically the workforce and ultimately Auckland
checks in with all staff on a regular basis the bottom line. L4, Grant Thornton House
152 Fanshawe Street
to make sure that they’re okay and provide Auckland 1140
T +64 9 308 2570
support if they’re not. F +64 9 309 4892
Consider outsourcing specific roles E enquiries@nz.gt.com
Don’t ignore your culture and values With many businesses reluctant or unable Wellington
With so many businesses focused on survival, it to bring in new permanent staff, there is L15, Grant Thornton House
215 Lambton Quay
is not surprising that culture has slipped off the a growing demand for outsourcing. For Wellington 6143
radar. Often, there’s not enough attention paid example, if you needed to hire a team of T +64 4 474 8500
F +64 4 474 8509
to the importance of core values, mission and specialist FMCG marketers, using an agency E enquiries@nz.gt.com
vision statements, how you treat your people, can be more flexible until there is more
Christchurch
and how you do business. certainty. L3, Grant Thornton House
Even in these difficult times, businesses Or where very specific high-value skills 134 Oxford Terrace
Christchurch 8140
need to take the time to demonstrate integrity are required, bringing in an individual T +64 3 379 9580
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E enquiries@nz.gt.com
with sincerity. While there may be some tough creating a permanent role. This will benefit
decisions to make around headcount, you need both providers and customers who want to www.grantthornton.co.nz
to include many voices around the table and be lean. If you would like to unsubscribe
take people with you on this journey. If you start The track ahead has many sharp bends, from our mailing list, please
contact your local office.
to compromise on your values, then you’ll start and the way forward will be difficult in many
to find yourself in hot water. industries. Yet the companies thriving in © 2021 Grant Thornton
New Zealand Ltd.
a post-COVID world will be the ones that
Rethink your skills strategy for a post- learned to reinvent themselves during times Grant Thornton New Zealand
Ltd is a member firm of Grant
COVID world of adversity. Thornton International Ltd (GTIL).
The new challenges COVID-19 poses for GTIL and the member firms are
not a worldwide partnership.
businesses require new skills to deal with them. Services are delivered by the
Organisations are being forced to snap out of member firms. GTIL and its
member firms are not agents
antiquated ways of teaching people, to embrace of, and do not obligate, one
technology, and adopt a much more inclusive another and are not liable for
one another’s acts or omissions.
approach to upskilling and reskilling people of Please see
all ages, across all communities. www.grantthornton.co.nz
for further details. This
While upskilling has a positive motivational newsletter is general in nature
impact on employees, by thinking now about and its brevity could lead
to misrepresentation. No
teams’ future skill requirements, businesses responsibility can be accepted
can position themselves strongly. With some for those who act on its content
Stacey Davies without first consulting us and
roles having changed drastically to adjust to Partner, Business Advisory Services obtaining specific advice. Articles
Grant Thornton New Zealand
circumstances, the crisis has allowed people to may be reprinted with our written
T +64 9 922 1291 permission.
develop new skills and identify where they fall E stacey.davies@nz.gt.com
short.
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